TOPIC: APPOINTMENT OF ARBITRATOR

INTRODUCTION:
ARBITRATION: Arbitration may be defined as, “the process by which a dispute or
difference between two or more parties as to their mutual legal rights and liabilities is
referred to and determined judicially and with binding effect by the application of law by one
or more persons (the arbitral tribunal) instead of by a court of law”.

ARBITRATOR: An ‘Arbitrator’ may be defined as, a private, neutral person chosen to

arbitrate a disagreement, as opposed to a court of law. An arbitrator could be used to settle
any non-criminal dispute, and many business contracts make provisions for an arbitrator in
the event of a disagreement. Generally, resolving a disagreement through an arbitrator is
substantially less expensive than resolving it through a court of law.
The legal definition of an ‘arbitrator’ is the submission of a dispute to an unbiased third
person designated by the parties to the controversy, who agree in advance to comply with the
award ,a decision to be issued after a hearing at which both parties have an opportunity to be
heard.
ARBITRATOR CAN BE APPOINTED BY:
 The parties to the arbitration agreement
 The court
 The third party

ARBITRATION ACT ,1940:

I. By the parties:
Section 9: Where an arbitration agreement provides that there shall be to two arbitrators,
one to be appointed by each party, so they may appoint accordingly.
Where appointed arbitrators neglects or refuses to act, or is incapable of acting, or dies, the
party who appointed him may appoint a new arbitrator in his place.
If one party fails to appoint an arbitrator, either originally or by way of substitution as
aforesaid, for fifteen clear days- after the sence by the other party of a notice in writing to
make the appointment, such other party having appointed his arbitrator before giving the
notice, the party who has appointed an. arbitrator may appoint that arbitrator to act as sole
arbitrator in the reference, and his award shall be binding on both parties as if he had been
appointed by consent: Provided that the Court may set aside any appointment as sole
arbitrator made under clause (b) and either, on sufficient cause being shown, allow further
time to the defaulting party to appoint an arbitrator or pass such other order as it thinks fit.

II.By the court:

Section 8: Power of Court to appoint arbitrator or umpire.

where an arbitration agreement provides appointed on consent of the parties, later on
differences arisen in making the appointment.
 Where the appointed arbitrator or umpire neglects or refuses to act, or is incapable of
acting, or dies, and the arbitration agreement does not show that it was intended that the
vacancy should not be supplied, and the parties or the arbitrators, as the case may be, do
not supply the vacancy.

Where the parties or the arbitrators are required to appoint an umpire and do not appoint
him; any party may serve the other parties or the arbitrators, as the case may be, with a
written notice to concur in the appointment or appointments or in supplying the vacancy.

If the appointment is not made within fifteen clear days after the service of the said
notice, the Court may, on the application of the party who gave the notice and after giving
the other parties an opportunity of being heard, appoint an arbitrator or arbitrators or
umpire, as the case may be, who shall have like power to act in the reference and to make
an award as if he or they had been appointed by consent of all parties.

Section 12: In this section the court appoints arbitrator; who is removed u/s 11 or his
authority is revoked through section 5.
Where the Court removes an umpire who has not entered on the reference or one or more
arbitrators (not being all the arbitrators), the Court may, on the application of any party to the
arbitration agreement, appoint persons to fill the vacancies.

Where the authority of an arbitrator or arbitrators or an umpire is revoked by leave of the

Court, or where the Court removes an umpire who has entered on the reference or a sole
arbitrator or all the arbitrators.

A person appointed under this section as an arbitrator or umpire shall have the like power
to act in the reference and to make an award as if he had been appointed in accordance
with the arbitration agreement.

III. By the third party:

Section 4: Agreement that arbitrators be appointed by the third party.

The parties to an arbitration agreement may agree that any reference there under shall be to
an arbitrator or arbitrators to be appointed by a person designated in the agreement either by
name or as the holder for the time being of any office or appointment.

THE ARBITRATION AND CONCILIATION ACT, 1996:

Appointment of Arbitrators [S. 11] Section 11 of the Act, 1996 is the lengthiest section.
There are 12 clauses under this section which elaborate on the matter. Section 11(1) –

After internationalization of present Act, nationality of an arbitrator is immaterial and so this

Section 11(1) of the Act provides freedom to the parties to appoint a person of any nationality
as an arbitrator, however, the parties may restrict themselves to certain nationalities of the
states to be appointed as an arbitrator. There is no discrimination in respect of nationality of
an arbitrator. Therefore, a foreign national may be appointed as an arbitrator.

Section 11(2) - This sub-section prescribes a procedure appointing the arbitrators and the
parties have been given the freedom to lay-down procedure under this sub-section (2)
although this sub-section (2) is to be read with sub-section (6) and sub-section (8) and the
freedom of the parties provided in this sub-section is subject to certain restriction as to follow
mandatory provisions laid-down in sub-section (6).

Section 11(3) - This sub-section (3) would come into operation when the parties fail to reach
agreement on an appointment procedure. An arbitration agreement with three arbitrators if
failed, each party is given authority to appoint one arbitrator and these two appointed
arbitrators shall appoint the third arbitrator who shall be the presiding arbitrator in the
arbitration.

Section 11(4) - Further, this sub-section (4) deals with the circumstances when a party fails to
appoint an arbitrator within prescribed time limit i.e., 30 days, even after the receipt of
request relating to appointment of an arbitrator from the other party or according to sub-
section (4)(b). The two appointed arbitrators fail to agree on the appointment of the third
arbitrator within prescribed time limit i.e.. 30 days, from the date of their appointment, in
such situation this sub-section (4) provides that the Chief Justice of India or the Chief Justice
of a High Court is authorized to make an appointment upon request of a party. Although, any
institution designated by the Chief Justice of India or Chief Justice of a High Court may
appoint an arbitrator. It is expected that these functionaries would act upon request of the
parties expeditiously and these functionaries are not required to consult the parties or the
arbitrators while making such appointment.

Section 11(5) - Under sub-section (5) failing any agreement referred to in sub-section (2),
there would be a sole arbitrator. Where the parties could not arrive to an agreeable position
on arbitrator within 30 days time from the date of the receipt of a request by one party from
the other party to do so, in such circumstances the Chief Justice or any person or institution
designated by the Chief Justice should make an appointment under the provision of sub-
section (5) of Section 11 of the Act . Failure to appoint arbitrator on new method empowers
other party to seek remedy from court for appointment of arbitrator.
Section 11(6) - Sub-section (6) contains a mandatory provision and it comes into play when
the parties had agreed on an appointment procedure i.e., when the parties or the two
appointed arbitrators failed to appoint a third arbitrators, a person including an institution has
failed to perform a function entrusted to him under that agreed procedure. That means that
when there is a complete failure on an agreed appointment procedure, this subsection would
be operated to eliminate obstacles.

Section 11(7) - Sub-section (7) states that there is no appeal and a decision is final, on a
matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justice or
the person or an institution designated by the Chief Justice.

Section 11(8) - Sub-section (8) provides guidelines in the matter of appointment of an

arbitrator by the Chief Justice or the person or institution designated by him. It is provided
under this sub-section (8) that gives guidelines while making the appointment of an arbitrator.
The functionaries mentioned in the sub-section, shall have due regard to these guidelines: (a)
any qualifications required of the arbitrator by the agreement of the parties, and (b) other
considerations as are likely to secure the appointment of an independent and impartial
arbitrator. Though, this sub-section (8) does not prescribe the qualification of an arbitrator but
specifies more particularly that an arbitrator should be an independent and impartial person.

Section 11(9) - Sub-section (9) also provides guidelines to functionaries i.e., the Chief Justice
of India or the person or institution designated by him, in the matter of appointment of sole
arbitrator or third arbitrator in an international commercial arbitration, that these functionaries
should appoint an arbitrator of a nationality other than the nationalities of the parties, in case
the parties belong to different nationalities. Thus, sub-section (9) aimed to eliminate scope of
partiality by nationality of different countries between the parties and arbitrator / arbitrators.

Section 11(10) - Sub-section (10) provides power to the Chief Justice to make an appropriate
scheme in respect of the matters entrusted to him, by sub-section (4) or subsection (5) or sub-
section (6). The powers vested under this sub-section (10) is of administrative nature
therefore the scheme made by the Chief Justice would be of administrative character which is
essential for enforcement of the Act effectively.

Section 11(11) - Sub-section (11) provides solution to the problem when different parties
approach to different Chief Justices or their designates, under sub-section (4), or subsection
(5) or sub-section (6). The Chief Justice or his designate to whom the request has been first
made under the relevant sub-section shall alone be competent to decide on the request. That
means the Chief Justice or his designate who first receives and accepts the request shall have
power to decide on the entrusted matter.

Section 11(12) - Sub-section (12) explains that in case of international commercial arbitration
reference is to be made to the Chief Justice of India and. in case of domestic commercial
arbitration reference is to be made to the Chief Justice of High Court within whose local limit
the principal court in clause (e) of sub-section 1(1) of Section 2 is situate and where the High
Court itself is the Court referred to in that clause, then the Chief Justice of that High Court.

Appointment of arbitrator(s) under the Indian Arbitration and Conciliation Act,

1996 through court assistance:
There can be reference to arbitration only if there is an arbitration agreement between the
parties. The Act makes it clear that an arbitrator can be appointed under the Act at the
instance of a party to an arbitration agreement only in respect of disputes with another party
to the arbitration agreement. If there is a dispute between a party to an arbitration agreement,
with other parties to the arbitration agreement as also non-parties to the arbitration agreement,
reference to arbitration or appointment of arbitrator can be only with respect to the parties to
the arbitration agreement and not the non-parties.

The source of the jurisdiction of the arbitrator is the arbitration clause. The arbitration clause
is normally a part of the main contract governing the parties. An arbitration agreement on the
other hand constitutes a separate agreement, distinct from the main contract, and is binding
on the parties. Parties can, even after the disputes have arisen, agree to have their disputes
referred to arbitration. The agreement, however, must be in writing. Although contracts are
required to be signed by the parties, arbitration clause need not be signed by the parties. An
arbitration clause is binding if the parties have given their express or implied or tacit consent
to refer the disputes to arbitration. Subject to the law of limitation, parties can refer their
disputes to arbitration any time.

There are two forms of arbitration namely, ad hoc and institutional arbitration. Both forms
have separate mechanism for appointment of arbitrators. In ad hoc arbitrations, parties make
their own arrangements for selection of arbitrators and for designation of rules, applicable
law, procedures and administrative support. However, an institution administers the arbitral
process as per the institutional rules on payment of administrative fees by the parties. The
institution also allows the parties to select arbitrator(s) from the institution’s panel of
arbitrator comprising experts drawn from various parts of the world.

Number of Arbitrators:
The Act provides that parties are free to determine the number of arbitrators which however,
should not be an even number. Failing any determination by the parties, the arbitral tribunal
shall consist of a sole arbitrator. The statutory requirement of odd numbers of arbitrators is a
derogable provision. The words in the provision “the parties are free to determine the number
of arbitrators” indicate that if they desire to exercise their option in favor of even number of
arbitrators and agree to not to challenge the consequent award, the award rendered would be a
valid and binding. The provision only gives a ground to either of the party in the event of
appointment of even number of parties to object to such composition of the arbitral tribunal.
A party has a right to object to the composition of the arbitral tribunal, if such composition is
not in accordance with the Act. There is, however, no provision for the eventuality in case
where the parties agree to even number. If neither of the parties challenge the composition
then any challenge to the composition must be raised by a party before the time period
prescribed under the Act, failing which it will not be open to that party to challenge the award
after it has been passed by the arbitral tribunal. The Act enables the arbitral tribunal to rule on
its own jurisdiction. A challenge to the jurisdiction of the arbitral tribunal must be raised, not
later than the submission of the statement of defense even though the party may have
participated in the appointment of the arbitrator and/or may have himself appointed the
arbitrator. The Act recognizes the right of both parties to choose the number of arbitrators. If
the party wishing to exercise the right fails to exercise such right within the time frame
provided then he will be deemed to have waived his right to so object.

Appointment of the Third / Presiding Arbitrator:

The Act provides that in arbitration with three arbitrators, each party shall appoint one
arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as
the presiding arbitrator. It is not necessary that the appointment of the third arbitrator be done
by the two appointed arbitrators by sitting together and in writing. The requirement of the law
is that there should be an appointment and the appointment should be by the two appointed
arbitrators. The statute does not contemplate that such appointment should be made in
writing. In Keshavsinh Dwarkadas Kapadia v. Indian Engineering Company, it was observed
that:

"The appointment of an umpire by two arbitrators means that the arbitrators are to concur in
appointing an umpire. There is no particular method of appointment of an umpire prescribed
by the Act. The usual method of appointment of an umpire by the arbitrators is in writing.
Arbitrators who are required to appoint an umpire are under no obligation to obtain the
approval of the choice of the personnel by the parties who appointed the arbitrators. If any
party is dissatisfied with the choice that will not affect the validity of the appointment. [See,
Oliver v. Collings) (1809) 11 East 367 : 103 ER 1045].

The appointment by arbitrators of an umpire should be the act of the will and judgment of the
two. Such an appointment is to be one of choice and not of chance. [See, Re-Cassell). [(1829)
9 B & C 624 : 109 ER 232].”

The provisions of the Act also do not provide that the appointment of third arbitrator cannot
be agreed upon orally or through mutual discussion. It is also not necessary that the two
arbitrators appointed by each of the parties must sit at one place, deliberate jointly and take a
decision in the presence of each other in regard to the appointment of the third arbitrator. All
that needs to be done is that they have actually consulted or conferred with each other and
both or one of them has informed the parties that the presiding or the third arbitrator has been
appointed by them after joint deliberation. In other words all that the two arbitrators need to
do to satisfy the provision of statute, while making the appointment is to:
(i) Actually make the appointment,
(ii) appointment should be made after consultation with each other, and
(iii) Such appointment is communicated to the parties.
The Act nowhere provides that the parties need to be consulted, involved or informed prior to
the appointment of the presiding arbitrator.

Appointment of Presiding Arbitrator by the Arbitral Institution:

An arbitration clause may require each of the parties to the dispute to nominate its arbitrator
and the third arbitrator is to be chosen by the two arbitrators appointed by the parties who
shall act as the presiding arbitrator .If under the appointment procedure contemplated by the
contract, any person or organization or body is required to appoint the presiding arbitrator
then the court will not exercise its jurisdiction under the Act to fill the vacancy. The cause of
action for moving an application under the Act would exist only if the person or organization
or body fails or refuses to appoint the presiding arbitrator.

In SBP v Patel Engineering, (2005) 8 SCC 618 and National Insurance Co. Ltd. v Boghara Polyfab Pvt.
Ltd., (2009) 1 SCC 267:
Where the parties failed to do so, were also required to appoint arbitrators in pursuance of an
arbitration agreement for arbitrations seated in India.Also, this power of appointment of
arbitrators on the failure of parties to do so, was characterized as a judicial power, instead of
an administrative power, which meant that the scope and nature of this judicial intervention
in an arbitration, was broader than it would otherwise be. In other words, the Chief Justices
while appointing arbitrators could hold a detailed trial and hear detailed arguments
concerning whether the arbitration agreement exists or not (as opposed to making a prima
facie determination, and leaving the final determination for the arbitrator).

This naturally led to delays in the appointment of arbitrators, sometimes the Section 11 [the
concerned provision in the Arbitration Act for the appointment of arbitrators] applications
being pending for years, consequently resulting in delay in the making of arbitral awards as
well. Even when speedy disposal of the disputes indeed might have been one of the reasons
why parties might have opted for arbitration over litigation at the first place.

RECOMMENDATIONS:

Indeed this function can be systemized by assigning it to a central arbitral institution like the
ICADR (International Centre for Alternative Dispute Resolution), after creating the necessary
infrastructure, which would in turn also help in popularizing the Institution, which
presently hardly deals with any cases in comparison with its competitors. Regional
institutions like the MCIA in Mumbai or the Nani Palkhivala Arbitration Centre (NPAC) in
Chennai, etc. can also be designated, depending upon the seat of arbitration, which would
also promote institutionalized arbitration in India.
CONCLUSION:

As stated above the parties,court and the third party can appoint the
arbitrator.The arbitration act, 1940 section 4,8,9,&12 and The arbitration and
conciliation act 1996 section 11 lays down the procedure and who has the
authority to appoint arbitrator.